Economic foundations tested

Last November, I reported on how the US Government was becoming increasingly alarmed at how the Irish economy was used as a virtual giant laundering operation by American companies intent on evading paying US taxes. Although the IDA have said they are not worried about the situation, it seems the Americans are about to take action. Could be dodgy times ahead.

IN A stark warning to the IDA and others who promote US investment in Ireland, senior American cabinet minister John Snow pledged last week that his administration was developing rules to halt “tax abuse” involving US companies transferring intellectual property and patents to overseas tax havens.

The IDA denies that Ireland is a tax haven, and a spokeswoman yesterday said the authority did not feel threatened by the remarks of the treasury secretary.

However, his remarks indicated that the American concerns over what Microsoft and other multinationals have been doing in relocating assets, was raising concerns at a high level in Washington last week.

“We feel the existing rules have not been effective at getting at this problem,” Snow told the senate finance committee meeting. He was questioned about media reports that said US companies have slashed their tax bills by transferring intellectual property to low-tax countries.

He was particularly quizzed about details of how Microsoft had shaved at least $500m from its annual tax bill by vesting $16bn in an Irish company, Round Island One Ltd. The Irish firm, the reports said, received licensing fees from copyrighted software that originates in the US but pays low Irish taxes on this revenue.

While Mr Snow didn’t mention Microsoft, he said the pending rules aim to remove “some of the incentives to engage in the sorts of behaviours that deny revenues to the United States treasury . . . this is a serious issue and we need to deal with it,” the treasury secretary insisted.

His officials are believed to be working on changes in the rules on the migration of intellectual and intangible property offshore and are expected to have new rules in place later this year.